Research: Focus on fraud

Today’s fraudsters may no longer be dealing in corn or sinking ships to forge a claim, but many are still succeeding in dodging the ever-increasing counter-fraud checks put in place across the insurance industry.

Last year, 125,000 fraudulent claims valued at £1.3bn were counted by insurers. From whiplash to application fraud, whether organised or opportunistic, fraudulent claims are crippling not only the industry itself but also its ability to carry out the historic and noble mandate of aiding individuals through the funds of many.

Post’s third research project of 2017 presents the numbers relating to the different types of fraud, highlights the demand for a shared data platform and produces a startling revelation the market should not ignore in its fight against fraud. Has the industry got it wrong?

Methodology

Between June and July 2017, we invited subscription members of Post together with those who follow the brand on social media to take part in a survey relating to fraud. Respondents were given 32 questions, a total of 72 respondents fully completed the survey, and these are the only results that have been taken into account.

At the same time as the market survey, Post commissioned Consumer Intelligence to take 11 fraud-related questions to the public. A total of 1028 responses were received from across the UK.

All data has been treated confidentially.

Demographics

Fraud prevalence and prevention

Insurance market respondents named motor insurance fraud as a major concern both now and in the future while over one-quarter of those who took part believe liability insurance fraud is on the rise.

“It’s not surprising that motor insurance is seen as the area of most concern, despite, according to our figures on detected frauds, the number and value of motor fraud falling slightly in 2016 (down 4% and 5%) on the previous year. The need to focus on organised frauds such as crash-for-cash scams remains important.” Malcolm Tarling, chief media relations officer, Association of British Insurers

“There is a growing concern that fraud in the travel insurance sector is rising, that any clampdown on whiplash claims may result in fraudsters being forced to find new avenues to exploit. The launch of the Claims and Underwriting Exchange travel database will help address the concerns around travel fraud highlighted by the survey.” Kaushik Patel, head of data services, Motor Insurers’ Bureau

“Clearly, the concern is that fraud moves from motor into casualty. We are already seeing this and with deafness claims and most other diseases not falling within the new proposed small claims track limit, this will make them more attractive for claims farming.” Lee Watts, head of claims technical, Allianz Insurance

Pursuing and promoting more prosecutions is the most effective way to reduce fraud, according to respondents, who also want to invest more in sharing knowledge and detecting fraud at point of quote.

“Effective pursuing and promoting more prosecutions reflect past consumer research that the best deterrent is the serious consequences of committing fraud, and the increased chances of being caught.” Tarling

“In what other sphere of life is more prosecution successful as the main driver for improvement? Think of use of mobile phones while driving, drink driving, for example, where the chances of being prosecuted are vanishingly small. What changes behaviour is education and, for wont of another phrase, social acceptability.” Howard Lickens, CEO, The Clear Group

Reasons for fraud – Has the industry got it wrong?

The market believes claims management companies and financial difficulties are driving insurance fraud, yet members of the public say they are simply tired of always paying out or having their claims turned down.

“The gap between insurer and consumer perceptions on the subject of financial stress being a motive for committing fraud is startling. Insurers typically see financial stress as a motivational factor, but these [Consumer Intelligence] survey responses suggest that this is not a common reason. Financial stress clearly isn’t evidence of fraud and I expect this will fuel much debate about the value of this indicator as a red flag.” Steve Jackson, head of financial crime, Covéa

“The next challenge for the sector has to be hammering home just how much fraud adds to premiums, as well as explaining that exaggerated claims are fraudulent and could result in the whole claim being rejected.” Ian Hughes, CEO, Consumer Intelligence

“One of the striking things here is the main reason, according to the general public, for committing fraud: paying premiums for years and never having claimed and when a claim is made, insurers always ‘barter down’. While not excusing fraud, this should be seen as part of the broader conduct debate. Do insurers do enough to ensure their products meet their customers’ needs?” James Pilgrim-Morris, head of claims, Hiscox

“There is recognition that identifying and dealing with fraud at application and claims stage will ultimately have limited impact on reducing fraud. The focus must be on educating people that this is not acceptable and communicating the impact of fraud both on fraudsters and the honest public.” Lee Watts, head of claims technical, Allianz Insurance

Sharing data

When it comes to sharing data, the market is still reluctant: not even half of respondents are happy to share with other insurers, and even fewer with the legal sector.

“The industry is getting better at sharing information, and proposals for further reform of the personal injury sector and the tighter regulation of claims management companies is encouraging. However, fraudsters will always look for new opportunities to exploit gaps and our experience is that they are becoming increasingly sophisticated.” Simon Roylance, claims crime prevention team manager, LV

Trust, transparency and two-way sharing is crucial for respondents to share more data with the claimant community

“It is best practice: to prevent fraud has to include sharing data, indeed, it is a regulatory requirement to fight financial crime and the pooling of accurate data for this purpose is one of the ways of achieving that objective. It is expressly permitted under s29 of the Data Protection Act.” Charlie MacEwan, corporate communications director, WPA

A stronger enforcement regime for CMCs was the most popular Insurance Fraud Taskforce recommendation chosen by respondents, followed by data sharing and benchmarking.

“What is interesting is the role attributed to CMCs by the insurers in generating fraudulent claims, and tighter control of CMCs is the number one voted-for recommendation from the Insurance Taskforce. That said, when asking the public in the survey, only 3% of those who had made a fraudulent claim say they did it because a CMC encouraged them – bit of a perception/reality gap here?” Tony Sault, UK general insurance market lead, EY

“Although CMCs are a very significant part of the problem, clamping down on them alone won’t solve it. Insurers need to command more trust than CMCs, so that members of the public can have confidence that they will be treated fairly without exaggerating their claim. This means insurers will have to set the right example, by being clear and transparent about costs to show that premiums are a fair reflection of the risks being insured.” Dr Matthew Connell, director of policy and public relations, Chartered Insurance Institute

Third parties

The insurance industry does not have much faith in the police tackling insurance fraud.

“All fraud and cyber crimes are reported through Action Fraud, which is a national reporting process. The reports are aggregated by the National Fraud Intelligence Bureau before being allocated to the most appropriate police force for investigation. In 2014, the Met launched Operation Falcon (Fraud and Linked Crime Online) as a dedicated response to fraud and offending online – often referred to as cyber crimes. Falcon officers are also working with schools and colleges to educate young people about the risks of fraud and cyber crime. While much activity is focused on pursuing offenders, we have also invested significantly in improving victim care and preventing crime occurring in the first place. This has included the production of a crime prevention manual The Little Book of Big Scams and the investment in the London Digital Security Centre, a public/private sector partnership established to protect small and medium-sized enterprises from fraud.” Pete Davey, directorate of media and communications, Metropolitan Police Service

The market is regularly recording and analysing information to identify and combat fraud, with the majority of respondents using the Motor Insurance Database, the Claims and Underwriting Exchange, credit databases and the Motor Insurance Anti-Fraud Theft Register.

“We’re pleased to see the industry still feels strongly that data-sharing initiatives are an important tool in reducing fraud. A number of large insurers are now [also] using the My Licence platform following the Insurance Fraud Taskforce’s recommendations and sooner rather than later, those not using the My Licence service may begin to find themselves at a significant competitive disadvantage.” Kaushik Patel, head of data services, Motor Insurers’ Bureau

Respondents feel the Insurance Fraud Bureau is more effective than the Insurance Fraud Enforcement Department at fighting fraud, and local police are given a fairly low ranking.

“I imagine IFED and the insurance industry will be disappointed with the effectiveness scores for IFED. It would be interesting to know what is driving these scores, given IFED funding has increased and resources bolstered.” Lee Watts, head of claims technical, Allianz Insurance

“Customers and potential customers must be under no illusion that they will be pursued and prosecuted if they commit fraud against an insurer. I’m of a strong opinion about this because it does not seem to be a priority for the police.” Charlie MacEwan, corporate communications director, WPA

General Data Protection Regulation

65% of respondents are concerned the General Data Protection Regulation may affect the data they can request or hold on customers.

“The 65% that are concerned on the impacts of GDPR on data held should be encouraged to review their own risk-based approach to data flows and the other regulatory requirements for data retention policies, which may supersede the GDPR. In addition, they will need to consider the 72 breach notification requirements.” Tony Sault, UK general insurance market lead, EY

“The GDPR is fundamentally a modernisation of the current data protection laws and properly embraced should not be a barrier to good practice data-sharing in order to tackle fraud. Essentially, what insurers need to focus on is increasing public trust and confidence in how they use personal data.” Patel

The future

To deal with tomorrow’s insurance fraudsters, employees of the future will need to possess data analytics skills and have the ability to understand artificial intelligence, according to over half of the respondents.

 “There is a shift in the skills future generations of the insurance profession will need and it is increasingly important we acknowledge this early, particularly considering regulatory changes on the way such as the General Data Protection Regulation.” Dr Matthew Connell, director of policy and public relations, Chartered Insurance Institute

“With impending reforms, questioning skills will become ever more important and a fixed tariff for injury claims brings with it challenges. Instructing field agents on these cases is likely to become uneconomical and, therefore, we will have to rely on telephone/video statements by desktop handlers.” Marc Shickell, financial crime manager, Covéa

“Some of the new skills needed are the ability to communicate at all levels and get more boardroom time and help influence strategy and understand all areas of the business.” Clive Clarke, group insurance manager, Lloyd’s Register Group Services and chairman of the Association of Insurance and Risk Managers

Nearly three-quarters of respondents believe motor insurance fraud will remain the most prevalent type of fraud to be committed in the future.

“Motor is at 73%, which I find high when you consider impending reforms. That said, I do believe facilitators will try ‘to make hay while the sun shines’ and we will see an upsurge prior to the implementation of reforms, which could account for this.” Shickell

“Motor insurance fraud remains a major, and expensive, problem for the insurance industry, driving up costs for honest motorists. We need to fight back with a combination of data and the expertise to mine that data and hunt out the fraudsters. Telematics data is proving to be a powerful ally in the battle against fraudsters.” Simon Rewell, head of financial crime, Insure The Box

“The industry must be ever vigilant to spot and respond to emerging fraud trends, as well as deterring fraud by highlighting its serious and long-lasting consequences. And with disreputable claims management companies ever eager to encourage spurious claims, tighter regulation of this sector cannot come soon enough.” Malcolm Tarling, chief media relations officer, Association of British Insurers

Cyber crime is described as “a major concern” for the future by one-fifth of respondents, while almost one-third are worried about the increased frequency of hacking

 “There is a significant threat around identity fraud. This type of cyber crime is becoming increasingly sophisticated and allows fraudsters to take out insurance policies, avoiding the need for genuine policies or a vehicle to make fraudulent claims.” Lee Watts, head of claims, technical, Allianz Insurance

“On cyber crime, many companies are reluctant to spend more money on a risk that is almost impossible to quantify and so fast-moving. They are looking to traditional covers to be extended.” Clive Clarke, group insurance manager, Lloyd’s Register Group Services and chairman of Airmic